Ruth Sunderland, Glenn Owen
December 23, 2023 23:15, Updated December 23, 2023 23:17
- Unemployment rate is lowest since the 1970s, housing market remains relatively strong
- The main U.S. S&P stock index will rise nearly 24% in 2023
Stock markets are enjoying a ‘Santa rally’ as traders become increasingly confident that interest rates will fall significantly in the new year.
The rise in share prices is a sign of market optimism and will bring Christmas cheer to millions of UK savers and business leaders, including those with pension plans.
But they are also a political beacon for Rishi Sunak, who is counting on an economic turnaround to close the poll gap widened by Sir Keir Starmer.
In 10th place, expectations are rising that the Bank of England could start cutting interest rates in May after inflation fell from 4.6% last month to a two-year low of 3.9%. , the “feel” for nearly half a year is acceptable. Going to bed before the most likely timing of a general election is a good factor.
It also gives Chancellor of the Exchequer Jeremy Hunt scope for tax cuts, including changes to income tax rates and stamp duty, which is currently at the top of the list.
The main U.S. S&P stock index rose nearly 24% in 2023.
US inflation ended the Christmas weekend just shy of its all-time high after new figures showed that it was cooling more than expected.
In the UK, the FTSE 100 index of major stocks has risen about 3% over the past month.
While 2023 was a quiet year for the FTSE as a whole, some solid British brands performed brilliantly. Shares in Rolls-Royce, Britain’s flagship engineering company, have soared by an astonishing 200 percent after the company’s new boss embarked on a turnaround plan.
Marks & Spencer’s share price has soared by more than 110 percent due to the recovery.
Other well-known companies whose shares rose include British Gas’ parent company Centrica, which also rose about 50%.
Shares in accounting software maker Sage rose nearly 60%. The share market value of Primark owner ABF has risen by around 50 per cent.
Many British savers hold US shares through pensions or investment funds, so they stand to benefit directly from Wall Street’s surge.
New York’s vibrancy is also encouraging, as the US economy is the largest in the world.
As such, it has had a major impact on other developed countries such as the UK. New figures released just before the Christmas weekend showed core U.S. inflation running at 1.9%, just below the 2% target.
Last week’s UK figures revealed that inflation, which peaked at 11% last year, is falling again, raising hopes that the Bank of England will start cutting interest rates from the current 5.25% level sooner than expected. It’s increasing.
“This clearly raises the prospect that the central bank is in a position to ease policy in the first half of the year rather than the second half,” said Neil Wilson, chief market analyst at Finalt.
Bank of England Governor Andrew Bailey has signaled he is in no hurry to cut borrowing costs from a 15-year high, but is under pressure to change course. Mortgage rates are already falling in anticipation of a rate cut.
Some in Citi say the central bank could cut interest rates multiple times to below 4% as inflation slows.
Markets around the world are buoyed by comments from Jerome Powell, the president of the US central bank, the Federal Reserve.
He suggested earlier this month that rate hikes were probably over and that discussions of rate cuts were “on the horizon.”
The UK economy has had a tough year, with slowing growth and the highest tax burden in decades.
On the plus side, unemployment is at its lowest level since the 1970s and the housing market remains relatively strong.